Euro edges back near 1.12 dollars as France's budget worries weigh on the currency
The euro recovered to around 1.1200 against the US dollar in early Asian trade on Thursday, according to FXStreet, though analysts saw limited upside while French fiscal concerns persisted. French Prime Minister Sébastien Lecornu's minority government announced a €54bn savings drive last month to avert a catastrophic downgrade or sovereign default, ahead of a divisive 2027 election. Hawkish minutes from the US Federal Reserve, which viewed inflation as its biggest risk, added to the dollar's support.
Bottom line — ABN Amro still forecasts EUR/USD at 1.15 by end-2026, arguing market rate-hike expectations are overpriced.
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ABN Amro strategists say widening negative German–US yield spreads have weighed on the euro, visible in two-year, ten-year nominal and ten-year real spreads.
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The bank argues markets expect more than three additional Fed hikes by 2027, against its own forecast of one, and slightly fewer than three ECB hikes by September 2027, against its forecast of two.
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Erik Bregar of Silver Gold Bull in Toronto questioned whether voters would back fiscal austerity before an election, saying the market appears to be rejecting the 2027 budget.
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Fed funds futures price an implied 22% chance of a 25-basis-point hike at the Fed's October meeting, according to the CME Group's FedWatch tool.
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FXStreet's analysis of Fed governor Schmid's remarks scored them 8/10 on its Speechtracker, above its 7.5/10 historical average, citing stubborn inflation and AI as the 'largest driver' of price pressures.
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Technically, FXStreet's daily chart shows EUR/USD below its 100-day moving average with the RSI near 23, indicating oversold conditions but no sustainable reversal yet.